NEW YORK-“We are involved in a merger at 2,000 feet of two behemoths,” said Ivan Seidenberg, chief executive officer of Nynex Corp., in a speech Jan. 28 to the Financial Women’s Association of New York.
The pending merger with Bell Atlantic Corp., which both companies expect to conclude by April, will play to their advantages of scale and size, preparing them to increase profitability even, “when competitors come into this market at full bore,” he said. The combined company, whose new name he did not disclose, will have a market capitalization of $50 billion.
As of Jan. 27, five of the seven states in Nynex’s region, which blankets the East Coast from Maine to Virginia, had either approved the merger or not sought jurisdiction over it. Vermont’s decision is expected shortly.
The New York State Public Service Commission has scheduled a meeting on March 5 for review of briefs and reply briefs filed in connection with the merger application.
“Three years ago, people said Nynex was brain dead. Now, the issue is that service could be better. The next issue is that we will get screwed in this merger, and I say, `Well? That’s New York’.”
On a more serious note, Seidenberg said demand for Nynex’s services has grown astronomically, so that its current work force of 65,000 represents an increase in staffing to respond. “In three to seven years, we will have fiber optics into any room, whether it’s wireline installed by someone in muddy shoes or wireless,” Seidenberg said.
“We are building like crazy, more cables, more fiber. And it’s the same in our wireless business, an enormous number of wireless networks going up.”
In the short run, regional Bell operating companies will have a competitive advantage entering long-distance markets compared to long-distance carriers seeking to enter local calling markets, Seidenberg said. “Our competition is a lot more nervous about this merger than we are. We have to make less of an investment to get into long distance than they do to get into local service.”
Deregulation will cause the market share of the combined Bell Atlantic-Nynex, now at 90 percent, to drop to 65 percent, Seidenberg predicted. At the same time, he projected revenues of the combined companies would increase to $40 billion from about $25 billion.
The key ingredient in this formula is the continued development of new products and services that historically have expanded customer base and customer usage.
“We are an old-line industrial company with high fixed costs-more retirees than active workers,” said Seidenberg, who started his career with the company 30 years ago as a cable splicer’s helper. “We can never be an entrepreneurial start-up, and we could go broke trying. Dominant companies in their markets can never compete on price. If all you do is discount, you’ll lose both money and customers.”
RBOCs, which have developed over the decades as “demand driven infrastructure support” companies, are evolving into “consumer franchise businesses.” Within that transformation, Seidenberg said he doesn’t see the new Bell Atlantic-Nynex as becoming “a one-stop-shop” operation, but rather a service provider.
“We don’t have the skills to integrate the whole process, and the regulations used to prohibit us from doing so,” he said. “Convergence-cable, cellular, long distance, local-will happen, and there will be two or three integrated companies. We’re all thinking about it and it’s driving us crazy.”
Seidenberg, who will be CEO of the merged telecommunications carrier, said he envisions the new company as having the “feel” of General Electric Corp. “The difference is that GE is a conglomerate” involved in a lot of diverse enterprises, “and we want to be in a lot of related industries.”
Expanding products and services while keeping a keen eye on the core business is essential to success. “It’s amazing, but every day in the entire communications business you can get up and make new mistakes,” he said. “We’ve gotten so pumped up in our desire to move into new markets. It gives a brief bump in your stock price and then you get clobbered because investors lose confidence in your core business.”
For 1996, Nynex reported a 10 percent increase in earnings per share, the first time the company has reported a 10 percent increase for two consecutive years, according to Seidenberg.
Carefully orchestrated overseas expansion also is key to the company’s goal of becoming a global carrier.
More than 50 percent of the approximately 700 million phone lines in the world are in about 10 countries, but the world’s population is about 5.5 billion. Connecting the unserved to telecommunications had been a far more daunting task than it is today.
“Cellular has changed all that because you don’t have to wire every village in the world,” Seidenberg said. “We have our sites set on seven to 10 regional markets abroad. Bell Atlantic has a huge operation in Mexico; Nynex is in Asia.”
